On 9 April 2024, the International Accounting Standards Board (IASB) published IFRS 18 Presentation and Disclosure in Financial Statements. IFRS 18 will replace IAS 1 Presentation of Financial Statements as the primary source of requirements in IFRS Accounting Standards for financial statement presentation. IFRS 18 is the first new IFRS® Accounting Standards since IFRS 17 Insurance Contracts was published in May 2017.
The IASB has received feedback from investors that the comparability of entities’ statement of profit or loss was reduced due to a lack of consistency in how financial performance has been presented. For example, two entities may have similar operations in a similar industry, but they may present the results of their operations differently.
In response to these and other concerns, the IASB undertook a project to replace IAS 1 with a new IFRS Accounting Standard to increase the comparability of financial performance presented by entities. While IFRS 18 introduces significant changes to financial statement presentation, not all aspects of IAS 1 are being revised. In many areas, the requirements of IAS 1 are expected to be ‘brought forward’ into IFRS 18 substantially unchanged. This approach is depicted below:
The following is a summary of the most significant changes introduced by IFRS 18:
- Required categories and sub-totals in the statement of profit or loss: items of income and expense will be classified into operating, financing, investing, income tax or discontinued operations categories. This classification will depend on a combination of an assessment of the entity’s main business activities and certain accounting policy choices.
- Required sub-totals in the statement of profit or loss: based on an entity’s application of the classification requirements as described in #1, certain sub-totals will be required to be presented in financial statements, such as operating profit. The operating profit sub-total is now defined in IFRS 18.
- Labelling, aggregation and disaggregation: expanded requirements for labelling, aggregation and disaggregation of information in financial statements.
- Narrow scope changes to the statement of cash flows: revised requirements for how the statement of cash flow will be presented, including the classification of interest and dividend cash flows.
- Management-defined performance measures: the requirement for certain entities to include ‘management-defined performance measures’ (i.e. alternative performance measures, ‘non-GAAP measures’, etc.) in their financial statement notes, with reconciliations to the nearest IFRS-compliant sub-total. For example, ‘adjusted profit or loss’ reconciled to profit or loss.
IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027 with earlier application permitted. Entities will be required to restate comparative periods.
The IASB’s project page contains all published documents related to IFRS 18.
BDO will issue an update to IFRS Accounting Standards At a Glance, IFRS Accounting Standards In Practice and other publications in due course.